ENGINE IS FALTERING.
CONSUMER SENTIMENT SUGGESTS THERE IS CONCERN OUT THERE.
WHAT CAN YOU TELL THEM ABOUT THE DEGREE OF CONCERN THEY
SHOULD HAVE? JARED:
CONSUMERS SHOULD HAVE WHATEVER DEGREE OF CONCERN THEY FEEL
THEY SHOULD HAVE, WE ARE NOT IN THE BUSINESS OF TELLING THEM
HOW TO FEEL ABOUT THE ECONOMY. IT IS TRUE THE SENTIMENT
INDICATOR IS UP 25% SINCE NOVEMBER. WE'VE SEEN INCREASES
INTERESTINGLY AMONG DEMOCRATS, REPUBLICANS AND INDEPENDENTS
AND THAT'S GOOD TO SEE, IT'S ATTRACT SOME IMPROVEMENTS IN
INFLATION, THE DISINFLATION IN THE LATTER HALF OF LAST YEAR
ESPECIALLY. INFLATION IS DOWN 60% FROM ITS
PEAK, IT WAS NICE TO HIT THE EXPECTATIONS NUMBER FOUR PCE,
HEADLINE AND CORE THIS MORNING, AND IN TERMS OF GDP GROWTH.
3% YEAR-OVER-YEAR, AND THERE ARE SOME NOISY SECTIONS, BUT AS
LONG AS REAL CONSUMER SPENDING FUELED BY THE TIGHT JOB MARKET
AND RISING REAL RAGES -- REAL WAGES HELPS CONSUMERS IN
SPENDING AND INCOMES AND RISING DISPOSABLE INCOMES, EVEN AFTER
INFLATION, I THINK IT'S A GOOD SIGN FOR CONSUMERS AND PROBABLY
BEHIND THE IMPROVEMENT OVER THE LONGER-TERM. JOE:
TAKE US UNDER THE HOOD FOR A MOMENT.
GREAT TO HAVE YOU BACK FROM THE NORTH LAWN, BY THE WAY.
THE MARKETS HAD A BIT OF A FREAK OUT YESTERDAY AND WE SAW
SOME RELIEF TODAY BUT THE NARRATIVE YESTERDAY WAS WE HAVE
PLATEAUED, THIS TRAIN IS RUNNING TOO HOT AND INFLATION
WILL KEEP ON STEAMING AHEAD. FORGET INTEREST RATE CUTS FOR
THE REST OF THE YEAR. THAT PART MIGHT NOT HAVE
CHANGED. YOU MADE AN INTERESTING POINT,
WHEN YOU START LOOKING AT OUR TRADE IN BALANCE, IMPORTS AND
EXPORTS, AND SOME OF THE OTHER NOISE THAT CREATED THE
HEADLINE, I WONDER HOW YOU FRAME THE DATA FROM YESTERDAY
AND WHERE WE REALLY ARE IN THE FIGHT AGAINST INFLATION. JARED:
I THINK IT'S IMPORTANT TO LOOK AT AS MANY CORE OR UNDERLYING
TREND INDICATORS AS YOU CAN. CORE INFLATION FULFILLS THAT
ROLE, THAT'S WHY THE FED ELEVATES IT SO MUCH, BUT IF YOU LOOK AT DOMESTIC DEMAND
MEASURE, REAL CONSUMER SPENDING AND REAL BUSINESS INVESTMENT.
TOGETHER THOSE ARE MORE THAN 80% OF NOMINAL GDP BUT YOU CAN
THINK OF THAT AS A CORE GDP. THAT MEASURE COMBINING THOSE
TWO VALUES CRITICS WHERE GDP IS GOING BETTER THAN GDP ITSELF.
THAT WAS UP 3.1% IN THE QUARTER. WE HAVE A BLOG ON THAT, BY THE
WAY, A LOT OF NICE GRAPHICS ON THIS POINT.
THE ECONOMY IS STILL AS STRONG AS EVER, THE JOB MARKET
CONTINUES TO PUT OUT GREAT NUMBERS.
I DON'T KNOW IF YOU NOTICE THE INITIAL CLAIMS BURIED ON
THURSDAY, I THINK IT WAS 207,000, THAT IS A REALLY SOLID
JOB MARKET NUMBER. WHEN IT COMES TO INFLATION, I
THINK THE QUESTION, WE SHOULD GET INTO IT IF YOU WANT, ARE
THE FORCES THAT HELPED WITH DISINFLATION IN THE SECOND HALF
OF THIS YEAR, ARE THEY ON A BREAK OR GONE? WE HAVE ARGUED THAT THEY ARE
STILL THERE AND WE EXPECT INFLATION TO CONTINUE A BUMPY
PATH TOWARD TARGET. KAILEY: MR. CHAIRMAN, WE DO WANT TO
TALK MORE ABOUT INFLATION WITH YOU BECAUSE AS YOU SAY, THERE
IS A QUESTION ABOUT WHETHER OR NOT PROGRESS WILL CONTINUE.
I WONDER TO WHAT DEGREE YOU ASSIGN PROGRESS ON THE FACT WE
DO HAVE TIGHTER MONETARY POLICY RIGHT NOW.
I KNOW YOU WON'T COMMENT DIRECTLY ON THAT POLICY ITSELF,
BUT WE'VE SEEN THINGS TIGHTEN SUBSTANTIALLY IN A SHORT PERIOD
OF TIME IN WE'VE SEEN INFLATION COME DOWN.
WE ARE NO LONGER ACTIVELY TIGHTENING, THE FED IS NOT
TALKING ABOUT HIKING RATES FURTHER.
IF THAT DOESN'T HAPPEN, HOW CONFIDENT ARE YOU THAT THE REST
OF THE WEIGHT OF THE INFLATION PROGRESS WILL BE MADE? JARED:
THERE'S AN OLD RULE OF THUMB THAT SAYS AS INFLATION COMES
DOWN, THE REAL INTEREST RATE, IF YOU HOLD THE FED POLICY
CONSTANT, THE REAL INTEREST RATE GETS TIRE -- GETS TIGHTER.
WE SEEN THE REAL INTEREST RATE COME UP SIGNIFICANTLY DURING
THIS PERIOD. YOU CAN'T JUST LOOK AT STUDY AS
SHE GOES WITHOUT TAKING INTO ACCOUNT MOVING VARIABLES.
WHEN IT COMES TO THE HOUSING MARKET, WHICH IS WHERE FED
POLICY BITES FIRST, THERE IS A REMARKABLE KIND OF GAP BETWEEN
THE EFFECTIVE MORTGAGE RATE, THE AVERAGE OF ALL THE
OUTSTANDING MORTGAGES, AND THE MORTGAGE RATE, THAT 7% IF YOU
GET A NEW MORTGAGE. THAT IS THE LOCK IN EFFECT, IT
IS AN IMPORTANT OVERLOOK SPREAD. I THINK FED POLICY IS VERY MUCH
-- AGAIN, I WON'T TALK ABOUT GRANULAR POLICY BUT I THINK
IT'S INCORRECT TO CONCLUDE IT ISN'T HAVING AN EFFECT OR MUCH
EFFECT ON THE ECONOMY. I UNDERSTAND THIS IS ANOTHER
WAY OF SAYING THE NEUTRAL INTEREST RATE MUST BE HIGHER
BECAUSE WE ARE POSTING GREAT NUMBERS WITH ABOVE FOR LOVELY
HIGH FED FUNDS RATE -- A RELATIVELY HIGH FED FUNDS RATE.
BUT I THINK THERE IS SOME BITE FROM INTEREST RATES. JOE:
THERE IS REPORTING TODAY THAT SOME OF DONALD HOLMES ALLIES
ARE SUGGESTING TO HIM HE RESTRUCTURE THE FEDERAL
RESERVE, AND IF YOU WERE ELECTED AGAIN WOULD MAKE THE
COMMANDER IN CHIEF, WOULD MAKE THE PRESIDENT INVOLVED IN
SETTING FED POLICY SUBJECT ESSENTIALLY TO WHITE HOUSE
APPROVAL. YOU TEND TO BEND YOURSELF INTO
A PRETZEL TO NOT COMMENT ON THE FAN, WHICH I REALIZE.
I JUST WONDER, IS THAT SOMETHING THE PRESIDENT, YOURS
OR ANY OTHER, CAN DO? JARED: WATCH ME TRY TO THREAD A NEEDLE.
[LAUGHTER] YOU JUST RAISED TWO ISSUES I
CAN'T TALK ABOUT, ONE IS FEDERAL RESERVE MONETARY POLICY
AND THE OTHER IS POLITICS. BUT I'M NOT GOING TO STAY
SILENT BECAUSE I THINK IT'S IMPORTANT.
LET ME SAY THE FOLLOWING. I AM A VERY ACTIVE READER OF
THE HISTORY OF MONETARY POLICY. I CAN SPEND A LONG TIME TALKING
TO YOU ABOUT ECONOMIES THAT HAVE BEEN BROUGHT TO THEIR
KNEES WHEN THE INDEPENDENCE OF THE CENTRAL BANK HAS BEEN
COMPROMISED. THAT'S ONE OF THE MANY REASONS
WHY THIS PRESIDENT TAKES THE STANCE HE DOES AND FOLLOWS IT
ASSIDUOUSLY. IT'S A HISTORY PEOPLE SHOULD
THINK ABOUT WHEN EVALUATING THE QUESTION YOU JUST ASKED ME.
LET ME LEAVE THAT THERE. JOE:
